Intrinsic value of Heska - HSKA

Previous Close

$97.79

  Intrinsic Value

$46.12

stock screener

  Rating & Target

str. sell

-53%

  Value-price divergence*

-214%

Previous close

$97.79

 
Intrinsic value

$46.12

 
Up/down potential

-53%

 
Rating

str. sell

 
Value-price divergence*

-214%

*Intrinsic value change (in %) minus stock price change (in %) in the past 12 months.

We calculate the intrinsic value of HSKA stock by summing up the current values of future distributable cash flows generated by the company and dividing the sum by the number of outstanding shares. As such, the intrinsic value calculation depends entirely on projections. The more accurate your projections of the company's performance are - the more reliable is the intrinsic value calculation result. Please make sure to check the stock valuation input data below and adjust it if necessary. The quality of the output (intrinsic valuation result) is only as good as the quality of the input. See also DISCLAIMERS.

STOCK VALUATION INPUT DATA

Revenue (in 2016), $M
Initial revenue growth rate, %
Terminal revenue growth rate, %
Revenue decline factor
Initial discount rate, %
Discount rate multiplier
Variable cost ratio, %
Fixed operating expenses, $M
Interest rate on debt, %
Effective corporate tax rate, %
Production assets / Revenue, %
Life of production assets, yrs
Working capital / Revenue, %
Revenue / Adjusted assets
Adjusted equity ratio
Cash flow adjustment, % of Revenue
Book value of equity, $M
Shares outstanding, mln
Market capitalization, $bln 0.8

 

FINANCIAL STATEMENTS FORECAST and PRESENT VALUE CALCULATION

Fiscal year
2016(a)
   2017
   2018
   2019
   2020
   2021
   2022
   2023
   2024
   2025
   2026
   2027
   2028
   2029
   2030
   2031
   2032
   2033
   2034
   2035
   2036
   2037
   2038
   2039
   2040
   2041
   2042
   2043
   2044
   2045
   2046

INCOME STATEMENT

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenue growth rate, %
  23.81
  11.10
  10.49
  9.94
  9.45
  9.00
  8.60
  8.24
  7.92
  7.63
  7.36
  7.13
  6.91
  6.72
  6.55
  6.40
  6.26
  6.13
  6.02
  5.92
  5.82
  5.74
  5.67
  5.60
  5.54
  5.49
  5.44
  5.39
  5.35
  5.32
  5.29
Revenue, $m
  130
  144
  160
  175
  192
  209
  227
  246
  266
  286
  307
  329
  351
  375
  400
  425
  452
  479
  508
  538
  570
  602
  637
  672
  709
  748
  789
  832
  876
  923
  972
Variable operating expenses, $m
 
  104
  115
  126
  138
  150
  162
  175
  189
  203
  218
  231
  247
  263
  281
  299
  317
  337
  357
  378
  400
  423
  447
  472
  498
  526
  554
  584
  615
  648
  682
Fixed operating expenses, $m
 
  22
  22
  23
  23
  24
  24
  25
  26
  26
  27
  28
  28
  29
  30
  30
  31
  32
  33
  34
  34
  35
  36
  37
  38
  39
  40
  41
  42
  43
  44
Total operating expenses, $m
  114
  126
  137
  149
  161
  174
  186
  200
  215
  229
  245
  259
  275
  292
  311
  329
  348
  369
  390
  412
  434
  458
  483
  509
  536
  565
  594
  625
  657
  691
  726
Operating income, $m
  17
  19
  23
  27
  31
  36
  41
  46
  51
  56
  62
  70
  76
  83
  89
  96
  103
  111
  119
  127
  135
  144
  153
  163
  173
  184
  195
  207
  219
  232
  245
EBITDA, $m
  22
  23
  28
  32
  37
  41
  46
  52
  57
  63
  69
  75
  81
  88
  95
  102
  109
  117
  125
  134
  143
  152
  162
  172
  183
  194
  206
  218
  231
  244
  258
Interest expense (income), $m
  0
  0
  0
  0
  1
  1
  1
  1
  1
  2
  2
  2
  2
  3
  3
  3
  3
  4
  4
  4
  5
  5
  5
  6
  6
  7
  7
  8
  8
  9
  9
Earnings before tax, $m
  17
  19
  23
  27
  31
  35
  40
  44
  49
  55
  60
  68
  74
  80
  86
  93
  100
  107
  115
  122
  131
  139
  148
  157
  167
  177
  188
  199
  211
  223
  236
Tax expense, $m
  5
  5
  6
  7
  8
  9
  11
  12
  13
  15
  16
  18
  20
  22
  23
  25
  27
  29
  31
  33
  35
  38
  40
  42
  45
  48
  51
  54
  57
  60
  64
Net income, $m
  11
  14
  16
  19
  22
  26
  29
  32
  36
  40
  44
  50
  54
  59
  63
  68
  73
  78
  84
  89
  95
  101
  108
  115
  122
  129
  137
  145
  154
  163
  172

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  11
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Total assets, $m
  131
  133
  147
  162
  177
  193
  210
  227
  245
  264
  283
  303
  324
  346
  369
  393
  417
  443
  469
  497
  526
  556
  588
  621
  655
  691
  729
  768
  809
  852
  897
Adjusted assets (=assets-cash), $m
  120
  133
  147
  162
  177
  193
  210
  227
  245
  264
  283
  303
  324
  346
  369
  393
  417
  443
  469
  497
  526
  556
  588
  621
  655
  691
  729
  768
  809
  852
  897
Revenue / Adjusted assets
  1.083
  1.083
  1.088
  1.080
  1.085
  1.083
  1.081
  1.084
  1.086
  1.083
  1.085
  1.086
  1.083
  1.084
  1.084
  1.081
  1.084
  1.081
  1.083
  1.082
  1.084
  1.083
  1.083
  1.082
  1.082
  1.082
  1.082
  1.083
  1.083
  1.083
  1.084
Average production assets, $m
  18
  19
  22
  24
  26
  28
  31
  33
  36
  39
  41
  44
  47
  51
  54
  57
  61
  65
  69
  73
  77
  81
  86
  91
  96
  101
  107
  112
  118
  125
  131
Working capital, $m
  23
  14
  16
  18
  19
  21
  23
  25
  27
  29
  31
  33
  35
  38
  40
  43
  45
  48
  51
  54
  57
  60
  64
  67
  71
  75
  79
  83
  88
  92
  97
Total debt, $m
  1
  5
  10
  15
  20
  26
  32
  38
  45
  51
  58
  66
  73
  81
  89
  98
  106
  115
  125
  135
  145
  156
  167
  179
  192
  204
  218
  232
  247
  262
  278
Total liabilities, $m
  44
  48
  53
  58
  63
  69
  75
  81
  88
  94
  101
  109
  116
  124
  132
  141
  149
  158
  168
  178
  188
  199
  210
  222
  235
  247
  261
  275
  290
  305
  321
Total equity, $m
  87
  86
  95
  104
  114
  124
  135
  146
  157
  169
  182
  195
  208
  222
  237
  252
  268
  284
  301
  319
  338
  357
  377
  398
  421
  444
  468
  493
  519
  547
  576
Total liabilities and equity, $m
  131
  134
  148
  162
  177
  193
  210
  227
  245
  263
  283
  304
  324
  346
  369
  393
  417
  442
  469
  497
  526
  556
  587
  620
  656
  691
  729
  768
  809
  852
  897
Debt-to-equity ratio
  0.011
  0.060
  0.100
  0.140
  0.180
  0.210
  0.240
  0.260
  0.280
  0.300
  0.320
  0.340
  0.350
  0.360
  0.380
  0.390
  0.400
  0.410
  0.410
  0.420
  0.430
  0.440
  0.440
  0.450
  0.460
  0.460
  0.470
  0.470
  0.470
  0.480
  0.480
Adjusted equity ratio
  0.642
  0.642
  0.642
  0.642
  0.642
  0.642
  0.642
  0.642
  0.642
  0.642
  0.642
  0.642
  0.642
  0.642
  0.642
  0.642
  0.642
  0.642
  0.642
  0.642
  0.642
  0.642
  0.642
  0.642
  0.642
  0.642
  0.642
  0.642
  0.642
  0.642
  0.642

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  11
  14
  16
  19
  22
  26
  29
  32
  36
  40
  44
  50
  54
  59
  63
  68
  73
  78
  84
  89
  95
  101
  108
  115
  122
  129
  137
  145
  154
  163
  172
Depreciation, amort., depletion, $m
  5
  5
  5
  5
  5
  6
  6
  6
  6
  7
  7
  4
  5
  5
  5
  6
  6
  6
  7
  7
  8
  8
  9
  9
  10
  10
  11
  11
  12
  12
  13
Funds from operations, $m
  -11
  18
  21
  24
  28
  31
  35
  38
  42
  46
  51
  54
  59
  64
  69
  74
  79
  85
  90
  97
  103
  110
  117
  124
  131
  139
  148
  157
  166
  175
  185
Change in working capital, $m
  -17
  1
  2
  2
  2
  2
  2
  2
  2
  2
  2
  2
  2
  2
  2
  3
  3
  3
  3
  3
  3
  3
  3
  4
  4
  4
  4
  4
  4
  5
  5
Cash from operations, $m
  6
  17
  20
  23
  26
  29
  33
  37
  40
  44
  49
  52
  57
  61
  66
  71
  76
  82
  88
  94
  100
  106
  113
  120
  128
  136
  144
  152
  161
  171
  181
Maintenance CAPEX, $m
  0
  -2
  -2
  -2
  -2
  -3
  -3
  -3
  -3
  -4
  -4
  -4
  -4
  -5
  -5
  -5
  -6
  -6
  -6
  -7
  -7
  -8
  -8
  -9
  -9
  -10
  -10
  -11
  -11
  -12
  -12
New CAPEX, $m
  -3
  -2
  -2
  -2
  -2
  -2
  -2
  -3
  -3
  -3
  -3
  -3
  -3
  -3
  -3
  -3
  -4
  -4
  -4
  -4
  -4
  -4
  -5
  -5
  -5
  -5
  -5
  -6
  -6
  -6
  -7
Cash from investing activities, $m
  -3
  -4
  -4
  -4
  -4
  -5
  -5
  -6
  -6
  -7
  -7
  -7
  -7
  -8
  -8
  -8
  -10
  -10
  -10
  -11
  -11
  -12
  -13
  -14
  -14
  -15
  -15
  -17
  -17
  -18
  -19
Free cash flow, $m
  3
  13
  16
  19
  21
  25
  28
  31
  34
  38
  42
  45
  49
  53
  58
  62
  67
  72
  77
  83
  88
  94
  100
  107
  114
  121
  128
  136
  144
  153
  162
Issuance/(repayment) of debt, $m
  0
  5
  5
  5
  5
  6
  6
  6
  6
  7
  7
  7
  8
  8
  8
  8
  9
  9
  10
  10
  10
  11
  11
  12
  12
  13
  13
  14
  15
  15
  16
Issuance/(repurchase) of shares, $m
  2
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash from financing (excl. dividends), $m  
  1
  5
  5
  5
  5
  6
  6
  6
  6
  7
  7
  7
  8
  8
  8
  8
  9
  9
  10
  10
  10
  11
  11
  12
  12
  13
  13
  14
  15
  15
  16
Total cash flow (excl. dividends), $m
  4
  18
  21
  24
  27
  30
  34
  37
  41
  45
  49
  52
  57
  61
  66
  71
  76
  81
  87
  93
  99
  105
  112
  119
  126
  134
  142
  150
  159
  168
  178
Retained Cash Flow (-), $m
  -23
  -9
  -9
  -9
  -10
  -10
  -11
  -11
  -12
  -12
  -12
  -13
  -13
  -14
  -15
  -15
  -16
  -16
  -17
  -18
  -19
  -19
  -20
  -21
  -22
  -23
  -24
  -25
  -26
  -28
  -29
Prev. year cash balance distribution, $m
 
  10
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash flow adjustment, $m
 
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash available for distribution, $m
 
  19
  12
  14
  17
  20
  23
  26
  29
  33
  36
  39
  43
  47
  51
  56
  60
  65
  70
  75
  80
  86
  91
  98
  104
  111
  117
  125
  132
  140
  149
Discount rate, %
 
  4.30
  4.52
  4.74
  4.98
  5.23
  5.49
  5.76
  6.05
  6.35
  6.67
  7.00
  7.35
  7.72
  8.11
  8.51
  8.94
  9.39
  9.86
  10.35
  10.87
  11.41
  11.98
  12.58
  13.21
  13.87
  14.56
  15.29
  16.05
  16.86
  17.70
PV of cash for distribution, $m
 
  18
  11
  13
  14
  15
  17
  18
  18
  19
  19
  19
  18
  18
  17
  16
  15
  14
  13
  12
  10
  9
  8
  6
  5
  4
  3
  3
  2
  2
  1
Current shareholders' claim on cash, %
  100
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
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Heska Corporation develops, manufactures, markets, sells, and supports veterinary products for canine and feline companion animal health markets in the United States, Europe, and internationally. The company operates through two segments, Core Companion Animal Health; and Other Vaccines, and Pharmaceuticals and Products. The Core Companion Animal Health segment offers Element DC and DRI-CHEM 7000 veterinary chemistry analyzers for blood chemistry and electrolyte analysis; HT5 and HEMATRUE veterinary hematology analyzers to measure white and red blood cell count, platelet count, and hemoglobin levels in animals; Element POC blood gas and electrolyte analyzers; Element i immunodiagnostic analyzers; and IV pumps. This segment also provides veterinary imaging instruments and services, such as digital radiography solutions and ultrasound systems, as well as sells mobile digital radiography products; point-of-care heartworm diagnostic test products for dogs and cats; TRI-HEART Plus Chewable Tablets for the prevention of canine heartworm infection, and treatment and control of ascarid and hookworm infections; and allergy products and services, including ALLERCEPT definitive allergen panels. The Other Vaccines, Pharmaceuticals and Products segment offers bovine vaccines; biological and pharmaceutical products for other animal health companies; and various turnkey services comprising research, licensing, production, labeling, and packaging, as well as provides validation support and distribution services. The company sells its products to veterinarians through a field organization, a telephone sales force, and independent third-party distributors, as well as trade shows, print advertising, and other distribution relationships. The company was formerly known as Paravax, Inc. and changed its name to Heska Corporation in 1995. Heska Corporation was founded in 1988 and is headquartered in Loveland, Colorado.

FINANCIAL RATIOS  of  Heska (HSKA)

Valuation Ratios
P/E Ratio 62.5
Price to Sales 5.3
Price to Book 7.9
Price to Tangible Book
Price to Cash Flow 114.6
Price to Free Cash Flow 229.2
Growth Rates
Sales Growth Rate 23.8%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate -25%
Cap. Spend. - 3 Yr. Gr. Rate 8.4%
Financial Strength
Quick Ratio 11
Current Ratio 0.1
LT Debt to Equity 0%
Total Debt to Equity 1.1%
Interest Coverage 0
Management Effectiveness
Return On Assets 9.1%
Ret/ On Assets - 3 Yr. Avg. 5.7%
Return On Total Capital 14.5%
Ret/ On T. Cap. - 3 Yr. Avg. 9.6%
Return On Equity 14.6%
Return On Equity - 3 Yr. Avg. 9.7%
Asset Turnover 1.1
Profitability Ratios
Gross Margin 41.5%
Gross Margin - 3 Yr. Avg. 41.1%
EBITDA Margin 16.9%
EBITDA Margin - 3 Yr. Avg. 12%
Operating Margin 12.3%
Oper. Margin - 3 Yr. Avg. 8.1%
Pre-Tax Margin 13.1%
Pre-Tax Margin - 3 Yr. Avg. 8%
Net Profit Margin 8.5%
Net Profit Margin - 3 Yr. Avg. 5.5%
Effective Tax Rate 29.4%
Eff/ Tax Rate - 3 Yr. Avg. 29.2%
Payout Ratio 0%

HSKA stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the HSKA stock intrinsic value calculation we used $130 million for the last fiscal year's total revenue generated by Heska. The default revenue input number comes from 2016 income statement of Heska. You may change it if you feel that it should be adjusted for some unusual circumstances that are not expected to be repeated in the future or if you already know (from interim financial statements, for example) that this year's revenue is going to be quite different.

Revenue growth rate. Forecasted future revenue growth rate is the most important input parameter for the intrinsic value calculation. Unlike other input parameters that are reasonably expected to be in line with their historic averages or their historic trends, the revenue growth rate by and large is a wild card: nobody really knows what the company's revenue will be in the future. Of course, the level of unpredictability is different for different industries (utility companies being the most predictable and, thus, less risky).
    We use three input parameters to forecast the revenue growth rate in our HSKA stock valuation model: a) initial revenue growth rate of 11.1% whose default value is the revenue growth rate in the most recent quarter compared to the quarterly revenue a year ago; b) terminal revenue growth rate of 5% whose default value is chosen to be close to the average nominal (i.e. not adjusted for inflation) GDP growth rate; and c) revenue decline factor of 0.9, which stipulates that revenue growth rate in each forecasted year will be equal to the difference of the revenue growth rate in the preceding year and the terminal revenue growth rate multiplied by this revenue decline factor (with the passage of time the revenue growth rate will be approaching the terminal revenue growth rate, but not quite reaching it - though the difference could be infinitesimally small).
    At the revenue decline factor of 1, the future revenue growth rate is forecasted to be constant and equal to the initial revenue growth rate. The smaller the revenue decline factor, the faster the revenue growth rate will approach the terminal revenue growth.

Discount rate. The discount rate is used for determining the present value of future cash flows: future cash flows are "discounted" as at normal conditions (that translate into positive expected return on investment) one dollar today is worth more than the same dollar in the future. Unlike all other valuation models, we use variable discount rate, i.e. it increases for each consecutive year. This is done to account for higher risk of cash flows coming in further in the future.
    The initial discount rate of 4.3%, whose default value for HSKA is calculated based on our internal credit rating of Heska, is applied to the cash flow expected to be received a year from now (well, actually, to be precise, in the financial year following the base year - the last year for which we have financial statements). For each consecutive year the discount rate is multiplied by the discount rate multiplier of 1.05, e.i. each year it increases by 5%. Feel free to change this number to correspond to your level of risk assessment of Heska.
    By the way, it is easy to set the discount rate to be constant (this would make comparison with other valuation models easier): just set the discount rate multiplier equal to 1 and chose the magnitude of the initial discount rate to your liking.

Variable cost ratio is the ratio of variable costs (i.e. costs that fluctuate with fluctuation of the volume of production) to the revenue expressed as a percentage. In the calculation of intrinsic value of HSKA stock the variable cost ratio is equal to 72.3%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $21 million in the base year in the intrinsic value calculation for HSKA stock. These expenses increase with the level of inflation in subsequent years.

Interest rate on debt is the average all-in rate of interest paid by the company on its debt. It is set at 3.5% for Heska.

Corporate tax rate of 27% is the nominal tax rate for Heska. In reality, companies find ways to pay much less taxes than that or not to pay them at all.

Cash flow adjustment could be used for any adjustment the investor deems necessary. Most commonly we use this field to account for stock options-related effects in excess of what is reported on the company's income statement. The cash flow adjustment is expressed as a percentage of the revenue, and in the current valuation of the HSKA stock is equal to 0%.

Production assets are the company's assets used for manufacturing products or provision of services. In the valuation model input table they are expressed as a percentage of revenue and for HSKA are equal to 13.5%.

Life of production assets of 10 years is the average useful life of capital assets used in Heska operations. It is used to calculate yearly capital expenditures needed to keep these assets in good order - we call it the maintenance CAPEX.

Working capital is the difference between the company's current assets and liabilities. In the model we use the ratio of working capital to revenue, which for HSKA is equal to 10%. A negative number means that the company is apt at using financial resources of its suppliers and customers; a large positive number, on the other hand, means that it either provides in-kind financing to others or is not good at managing its inventories.

Book value of equity - $87 million for Heska - is used in calculation of the "floor" for intrinsic valuation based on the discounted cash flow (DCF) method. Even if the prospects are very bad for a company, its assets could always be sold now for their current fair market value.

Shares outstanding of 7.807 million for Heska is needed to calculate the intrinsic value of one share.

Market capitalization is used here only for reference purposes and as a quick check that the share price and the number of shares outstanding numbers are correct - something especially to be cognizant about at stock splits. So, the market capitalization of Heska at the current share price and the inputted number of shares is $0.8 billion.

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COMPANY NEWS

▶ Heska posts 2Q profit   [Jul-31-17 11:02PM  Associated Press]
▶ Heska Reports Second Quarter Results   [08:00AM  PR Newswire]
▶ ETFs with exposure to Heska Corp. : July 11, 2017   [Jul-11-17 02:38PM  Capital Cube]
▶ ETFs with exposure to Heska Corp. : June 30, 2017   [Jun-30-17 03:02PM  Capital Cube]
▶ ETFs with exposure to Heska Corp. : June 19, 2017   [Jun-19-17 03:29PM  Capital Cube]
▶ Scott Humphrey Joins Heska's Board of Directors   [Jun-13-17 09:00AM  PR Newswire]
▶ Heska Corp. Value Analysis (NASDAQ:HSKA) : May 4, 2017   [May-04-17 04:51PM  Capital Cube]
▶ Here's Why Heska Corporation Is Dropping Today   [May-02-17 12:33PM  Motley Fool]
▶ Heska posts 1Q profit   [08:15AM  Associated Press]
▶ Heska Reports First Quarter Results   [08:00AM  PR Newswire]
▶ Medical Device Maker Bolts Higher On Earnings In Massive Volume   [Apr-26-17 11:10AM  Investor's Business Daily]
▶ Today's Strong Buy Stocks at New Highs   [Apr-05-17 08:35PM  Zacks]
Stock chart of HSKA Financial statements of HSKA
Valuation of Stocks

The paper VALUATION OF STOCKS: The Quest for Intrinsic Value provides a detailed description of our valuation model and discloses the calculation algorithm.

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